DeFiDecentralized finance (DeFi) is among the new innovations brought about by the realization of digital currencies. They have become a force to reckon with as they offer financial services through blockchain technology. DeFi growth has been hindered in the region of North America due to regulatory uncertainty.
According to Chainalysis, a leading blockchain analysis firm, various challenges face the growth of decentralized finance in North America based on the unclear nature of regulatory frameworks. This has hindered the growth of DeFi, and potential solutions to these challenges need to be implemented to ensure the growth of blockchain innovation.
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Initially, North America served as a dominant region that favored cryptocurrencies. The region recorded a boost in crypto on-chain value to $1.2 trillion between July 2022 to June 2023. According to Chainalysis, this figure accounts for 24.4% of global transactions that were conducted during the period.
Despite this positive review on crypto acceptance in North America, DeFi has experienced a dip in the region. This follows reports on North America being the lead in DeFi adoption and usage. Chainalysis elaborated that raw transaction volume is relatively high. Still, its activity in decentralized finance has dropped significantly over the past year.
Chainalysis reported that several DeFi protocols have specialized in speculative trading. Moreover, these platforms have been reported to launch assets that are absent from their centralized counterparts.
As such, this has made these projects the first go-tos for crypto investors who seek to diversify their portfolios during market uncertainty. The continued regulatory uncertainty has added to the changes facing the growth of DeFi in the region. According to Chainalysis:
“Though challenging, developing such regulation is imperative as DeFi has many useful real-world applications like trading, asset management, lending, and payments, to name just a few.” Chainalysis
Challenges facing DeFi in North America
The analysis firm commented on the decline in crypto activity over the past year, which has been attributed to a decrease in global transaction volume and mainstream adoption.
However, North America still managed to get a top listing in the 2023 Global Crypto Adoption Index, coming in at fourth position in the overall blockchain analysis firm. The region is currently experiencing a correction that might suggest a bounce back from the crypto winter.
As such, the role played by regulatory policies plays a pivotal role in determining the success of decentralized finance (DeFi).
Regulatory delays have been an influence on the decline in DeFi as the region descended from conducting high-profile marketing strategies, including celebrity endorsements, to uncertainty in 2023. Considering the delayed regulations and scrutiny around well-established crypto firms has led the US to be the loser in all its efforts to gain control of the decentralized crypto market.
An instance, when LUNA collapsed in 2023, it had obliterated over $59 billion from the crypto market. This was after its investors, who had seen significant gains in their investments the prior year based on LUNA’s rapid ascent, saw their fortunes vanish.
Another instance was the collapse of Sam Bankman-Fried’s FTX crypto exchange, which set the entire crypto world in disarray. Among the affected currencies included Bitcoin, which saw a fall of over 80%.
Among other key challenges favoring the Chainalysis report on the DeFi dip in North America include KYC/AML Compliance. The Know Your Customer and Anti-Money Laundering regulations are crucial for finance platforms.
As such, the pseudonymous nature of DeFi parents is a challenge in their implementation in global finance. Also, vulnerabilities in smart contracts are a gateway to cybercrimes like hacking, which also present a challenge to DeFi’s growth in North America.
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